Core Viewpoint - Guangzhou's municipal government has announced a water price reform effective June 1, 2025, adjusting the water prices for residential and non-residential users in the central urban area [1][4]. Pricing Adjustments - The new residential water prices will be set at 2.55 CNY/m³ for the first tier (up to 21 m³), 3.82 CNY/m³ for the second tier (21 to 27 m³), and 7.65 CNY/m³ for the third tier (above 27 m³) [1][3]. - The combined water price will be 2.80 CNY/m³, while non-residential water prices will be adjusted to 4.40 CNY/m³, and special water usage will be priced at 25 CNY/m³ [1][3]. Historical Context and Infrastructure Investment - The current water pricing has been in place since 2012, and the city has invested approximately 170 billion CNY in water supply infrastructure, including the construction of new water plants and the renovation of old pipelines [4]. - The population served by the water supply has increased from 8.9 million to 11.43 million, with the daily water supply capacity rising from 4.65 million m³ to 5.19 million m³ [4]. Financial Impact - The average water supply price will decrease compared to the previously proposed plan, resulting in an annual reduction of 118 million CNY in user water expenses [1][4].

Group 1 - The central government has issued opinions to optimize the pricing mechanism for water, electricity, and gas, emphasizing the need for a reasonable operation of price levels and important commodity prices [1] - The new pricing policy aims to enhance the profitability of water supply operators by implementing a progressive pricing system for non-residential water usage, which is expected to drive profit recovery and growth [1] - The 2021 urban water pricing management measures have been reiterated, focusing on cost auditing as the basis for setting water prices, ensuring that water supply companies can achieve reasonable returns [1] Group 2 - Shenzhen's water price adjustment hearing is scheduled for April 11, with proposed increases of 13.1% to a new price of 3.8991 yuan per cubic meter [2] - Historical trends indicate that price adjustments in major cities can catalyze water price reforms, potentially improving the long-term low returns in the domestic water supply industry [2] - Companies such as China Water Affairs (00855) are expected to benefit significantly from the ongoing improvements in water pricing policies, with a notable portion of their revenue derived from water supply operations [2]

Core Viewpoint - Shenzhen's water price reform is set to address rising cost pressures on water supply companies, with proposed increases of 13% across both residential and non-residential categories, aiming to improve profitability in the sector [1][2][3]. Group 1: Event Details - A public hearing for Shenzhen's water price reform is scheduled for April 11, with two proposed pricing schemes for residential and non-residential water usage [2]. - The first scheme proposes increases for residential water prices to 2.67/4.54/9.35 CNY per ton for the first, second, and third tiers, while the second scheme suggests 2.94/5.00/10.29 CNY per ton, reflecting increases of 0%/13%/17% and 10%/25%/28% respectively [2]. - Non-residential water prices are proposed to rise to 4.76 CNY per ton under the first scheme and 4.57 CNY per ton under the second, with increases of 26% and 21% respectively [2]. Group 2: Current Pricing and Financial Performance - Shenzhen's current water pricing has remained unchanged for over seven years, with the first tier residential price at 2.67 CNY per ton, leading to declining profitability for local water supply companies [3]. - Shenzhen Water Group's net profit has decreased from 699 million CNY in 2018 to 166 million CNY in 2023, with gross margins dropping from 31.22% to 20.69% during the same period [3]. Group 3: Cost Transmission Mechanism - The lack of an effective cost transmission mechanism is identified as a core reason for the declining profitability of Shenzhen Water Group, with the current pricing structure not reflecting the annual average cost increase of approximately 3% [4]. - The implementation of new management regulations in October 2021 aims to enhance the market-oriented nature of water pricing and establish a regulatory cycle of three years for price adjustments, which could help rectify the cost transmission issues [4]. Group 4: Historical Context and Future Implications - Historical data indicates that price adjustments in major cities catalyze broader water price reforms across the country, with recent adjustments in cities like Shanghai and Nanjing suggesting a potential acceleration in price mechanism improvements nationwide [5][6]. - Since the introduction of the new management regulations in August 2021, 35 cities have adjusted their water prices, indicating a trend towards improving the long-standing low return issues in the water supply industry [7]. Group 5: Investment Strategy - The ongoing refinement of water pricing policies and the alignment of industry pricing mechanisms are expected to enhance overall returns in the water supply sector, presenting significant investment opportunities in water utility assets [9].